How Heroic Are Entrepreneurs?

The Spirit of Enterprise, by George Gilder New York: Simon & Schuster, 274 pp., $17.95

George Gilder, the author of Wealth and Poverty in 1981, has once again written a book that economists—even, or perhaps especially, "Austrian" economists—will find both frustrating and appealing. The volume consists of about a half-dozen chapters providing exciting and inspiring accounts of intrepid entrepreneurial genius and success, in fields of endeavor ranging from frozen fried potatoes to microprocessor chips, from Canadian natural gas discovery to Japanese motor scooters. These ("story"-like) chapters are interspersed with about an equal number of other ("sermon"-like) chapters that spell out the message of the book and attempt to drive it home by varied repetition.

Gilder is a highly talented writer. He has done a good deal of homework, and he presents his sermonic message in lively, persuasive prose that squeezes every ounce of virtuous punch from his inspiring accounts of entrepreneurial courage-and-sweat. What is Gilder's message? And why might honest and thoughtful economists greet it with about equal doses of exasperation and admiration?

Gilder's thesis is that the capitalist economy has been seriously misunderstood by just about all economists, starting with Adam Smith in the 18th century. Smith, Gilder asserts, had a "concept of the economy as a great invisibly guided 'machine' in which capitalists are tools of the 'market.'" This view, Gilder argues, is utterly fallacious in failing to see that the virtues of capitalism arise from capitalists being leaders rather than followers, from their being genuine creators rather than merely obedient servants to consumer demand. (Even economists of the Austrian School, whom Gilder concedes to have been the most cognizant of entrepreneurs, are guilty of seeing them as "somehow responding to opportunities created by the market," whereas, he urges, these opportunities are in fact created by the aggressive and original initiative of these very entrepreneurs.)

This fundamental failure by economists to understand capitalism has led them to see stagnation where in fact dynamic development is occurring, to misinterpret economic statistics, and to prescribe disastrous public policies. "As entrepreneurs accelerate the processes of creative destruction that impel all economic advance, the economists measure the destruction, but not the creativity. They see the sinking value of existing capital but neglect the new ideas, hopes, enthusiasms, and plans of entrepreneurs."

Gilder, however, does not confine his eloquent preaching to the enunciation and elaboration of the theme that capitalism is a perennial process of creative destruction, as the economist Joseph Schumpeter so ably described, especially in his seminal work, Capitalism, Socialism and Democracy, published in 1942. Had Gilder confined his discussion to the process of creative destruction, this reviewer would have little to feel exasperated about, except perhaps in regard to Gilder's apparent belief that possibilities for entrepreneurial action are confined to small, self-owned businesses. The Schumpeterian theme is undoubtedly a valid one, both in its understanding of the dynamics of capitalist progress and in its indictment of many, many economists—but surely not Adam Smith!—for not recognizing this (either altogether, or with sufficient appreciation of its centrality). A good deal of the exciting tales of entrepreneurial derring-do contained in this book serve admirably to illustrate this theme. Unfortunately, Gilder sees his mission as extending beyond the articulation of these important insights.

For Gilder, it appears, an equally important objective of the volume is to flesh out views that he had outlined in earlier work, views which, to this reviewer, are far less acceptable. These flawed views are so interwoven with Gilder's valid message as to seriously compromise his entire perspective upon the capitalist process. This is all the more distressing in that nothing in Gilder's valid message really depends upon these other, less-valid, views.

Gilder is at great pains throughout the volume (a) to portray successful entrepreneurs (Gilder never does dwell upon the unsuccessful ones) as moral heroes, imbued with noble religious (or quasi-religious) ideals; (b) to present entrepreneurs not as responding to consumer demand but—in explicit supply-side fashion—as generating demand through their own wholly original and spontaneous creativity; (c) to argue that the primary motivation that drives entrepreneurs is neither selfish nor crass but altruistic. All this is, at best, irrelevant and unnecessary, if not downright wrong.

No doubt many successful entrepreneurs are morally attractive individuals, although few will be persuaded that their primary motive is to benefit the public without regard to their own well-being. No doubt many of these entrepreneurs owe their success to wholly admirable qualities of grit and courage, inspired vision, and sensitivity to the needs of others. But nothing in the economic role of entrepreneurs—a role so well understood, in broad terms, by Gilder—depends, as a general matter, on their being moral heroes. Even if entrepreneurial alertness and creativity turned out to be closely correlated with the most repulsive of human traits imaginable, we would still be compelled to recognize, grudgingly perhaps, the primordial importance of the entrepreneurial role for capitalist growth and prosperity.

Gilder weakens his case for recognition of the social significance of the entrepreneurial contribution by diverting the attention of his readers to the moral heroism—let alone the "altruism"—he sees in the exciting stories he tells us. To be sure, a host of writers have committed the symmetrical error of attributing capitalist progress entirely to the ruthless rapacity of unattractive robber barons—but that hardly justifies Gilder's no less misleading treatment.

Nor does Gilder's supply-side emphasis fit comfortably into his major theme. Certainly entrepreneurship may be originally creative in the most profound sense. Yet to see this as exemplifying a certain primacy of supply over demand is quite mistaken. What the original and creative entrepreneur creates must, after all—if the entrepreneur is indeed successful—directly or indirectly anticipate the desires of consumers. The measure of entrepreneurial success is the degree to which the entrepreneur is able to place before the consumer goods and services that the consumer finds to his liking (even though, as Gilder correctly notes, the consumer may not have dreamed of these goods and services until this moment).

To understand, as Gilder correctly does understand, that entrepreneurs "solve problems" for society is, after all, to recognize that the social value of entrepreneurial creativity lies in its ability to cope with independently existing problems—that is, to better satisfy the needs of the consuming public. To recognize, as Austrian economists have done for over a century, the primacy of demand is not to claim that demand chronologically precedes supply. Nor is it even to claim that consumers recognize, before having been shown goods already produced, that these goods are indeed attractive to them. Rather it is to understand that the driving motivations of all suppliers, including the entrepreneurial drive that motivates them all, are directed toward the anticipation of what will please the sovereign consumer—once he is shown what has been made available. It is because of this that market dynamics are propelled, ultimately, by the consumer, whose own sense of well-being must in the last analysis be the decisive measure of economic success.

Gilder is wholly on target in criticizing economists, in general, for failing to understand the entrepreneurial dynamics central to the market economy. It is unfortunate—and entirely unnecessary—that he too has exposed himself, in turn, as a target for legitimate criticism by the very "experts" whose pretensions he has so properly punctured.

Israel Kirzner, professor of economics at New York University, is the author of Perception, Opportunity, and Profit and Competition and Entrepreneurship, among other works.